What is an offset mortgage?

6th Oct 2023


It’s likely you will be familiar with the term fixed rate mortgage or tracker/variable mortgages but have you heard of an offset mortgage? 


An offset mortgage is a type of mortgage that allows you to utilise your savings to benefit your mortgage by reducing the amount of interest you pay overall on your mortgage debt. 


What are the benefits of an offset mortgages?


There are several benefits of an offset mortgage. The main advantage is using your savings to reduce the amount of interest you pay overall, naturally reducing your mortgage term. This is because the savings held in the associated savings account offsets the amount of interest accrued on your mortgage debt. 


For example, if you have a £100,000 mortgage and £25,000 in the designated savings account, you will only be charged interest on the £75,000 difference, meaning your monthly mortgage payment, reduces your mortgage debt faster as less interest is charged. Using this method, your mortgage is repaid quicker as the mortgage term is naturally reduced. Alternatively, you may choose to take pay a lower monthly mortgage payment rather than reduce the mortgage term. 


Another benefit offset mortgages provide, is that you are able to keep access to your savings at all times in case they are needed as well as reducing the amount of interest you are charged on your savings. 


What are the disadvantages of offset mortgages? 


Like every mortgage product, as well as advantages, there are also some disadvantages to offset mortgages. 


The mortgage provider doesn’t pay any interest on the savings in the associated savings account so in some circumstances, you may be financially better off earning interest on your savings in a different savings account. This is an important consideration if you rely on the accrued interest your savings earn in order to fund your day-to-day living expenses. 


Often the fees associated with setting up an offset mortgage can be higher than taking a standard fixed or variable rate mortgage. 


One of the main disadvantages though is the limited number of mortgage providers offering offset mortgages, which is possibly one of the reasons they are less common. 


Who are offset mortgages suitable for? 


Offset mortgages aren’t suitable for everyone which is why we would always recommend you speak to a whole-of-market mortgage broker like The Mortgage Pride who can assess if an offset mortgage may be suitable for your mortgage needs and personal circumstances. 


They are likely to be most suited to people who have savings that they want to keep access to so they don’t want to use their savings to repay a lump sum off their mortgage, but have a desire to use their savings for maximum impact, especially if you don’t rely on the accrued interest on your savings to finance your day to day living costs.


Also, if you are a higher rate or additional rate taxpayer, they may be of value as you do not have to pay tax on your savings interest for the savings linked to the offset mortgage.


Can I have a fixedrate offset mortgage? 


Yes. If you like the idea of an offset mortgage but are concerned about the impact of interest rate rises on your monthly mortgage payment, the good news it is possible to have a fixed-rate offset mortgage, allowing you to benefit from both the stability of a fixed interest rate and using your savings to reduce the overall interest your mortgage debt accrues. 


However, not all mortgage lenders offering offset mortgages offer a fixed rate option so it is important to make sure you are matched to the right type of offset mortgage deal for your personal circumstances. A mortgage expert like The Mortgage Pride can ensure you secure the most suitable mortgage deal by matching you to the right mortgage lender for your needs. 


How does an offset mortgage work and where can I find out more information?


Still have questions regarding ‘what is an offset mortgage? If you want further information about offset mortgages or want to find out if they might be suitable for you, we recommend you speak to a whole of market mortgage broker like The Mortgage Pride. Our friendly and experienced mortgage advisors are always happy to answer any questions you may have so contact them today. 


Tel: 01782 450050

Email: hello@themortgagepride.co.uk


*Your home may be repossessed if you do not keep up repayments on your mortgage.